Well, actually, all of us should. So, why do I have such a strong commentary on the subject matter of IRA contribution limits…whether it be an IRA, Roth IRA or SIMPLE IRA? It is because in comparison to a 401K plan, the IRA just doesn’t hold up with any aggressive planning you may have to increase the value of your retirement plan and retirement savings. When you think that with your basic IRA you can contribute up to a whopping $5,500 (under the age of 50) or $6,500 (over the age of 50) vs. a potential of $51,000 (under the age of 50) or $56,500 (over the age of 50) with your 401K, there is really no comparison.
But, notice I did not mention a Simplified Employee Pension (SEP)? For those of you who are crafty, and possibly have a SEP, you would say that the SEP is easier to administer and less costly….and, you can contribute almost the same amount (potentially). And, you may be correct. But, keep in mind that in most cases, even with contribution limits, the 401K will and should be a stronger consideration. When you take into account the additional benefits of the 401K being that:
1) You can take a 401K loan from your 401K plan….try taking a loan from your SEP…you can’t;
2) You can establish your 401K plan with no 401K custodian…try establishing your SEP IRA without an IRA custodian…that’s right, you can’t;
3) Don’t want to pay annual fees with your self-directed 401K plan? You may be able to do that. Try establishing a self-directed SEP IRA and not pay annual fees. Yes, you are getting good with this…you can’t.
4) Have a Prohibited Transaction with your 401K and the world doesn’t come to an end. Have a Prohibited Transaction with your SEP IRA….well, let’s just say “Katie, bar the doors.”
You see, there is nothing wrong with your IRA…even a SEP. But, generally speaking, no IRA or self-directed IRA will ever match up to the benefits of the 401K.
Learn more about IRA contributions.
As always, the information is intended to be educational in nature and is not, nor should it be intrpreted as, any form of tax, legal, financial or investment advice. Moral of the story….always consult with your tax, legal, financial or investment professional.